Medicaid, Income and the ACA John Graves Vanderbilt University
Conceptual Overview of ACA• Largest coverage expansion in a generation.• Designed as a package of reforms to extend coverage to ~30-33m uninsured, while leaving current system in place.• Three-legged stool – Medicaid to 138% FPL – Exchange tax credits and subsidies 100-400% FPL. – Individual and group insurance market reforms, incl. mandate.
Conceptual Overview of ACA• $1 trillion gross cost largely the coverage expansions. – $500b: Medicaid – financed 100% by feds for first 3 years; financed up to 10% by states after 2017. – $500b: Exchange Tax Credits and Subsidies – Offset predominately by $700b in lower Medicare spending. • 1/3: Reductions in reimbursement to hospitals • 1/3: Reductions in Medicare Advantage reimbursement. • 1/3: Other stuff (e.g., DSH payment reductions). • Key assumption is that lots of uninsured will be covered.
Conceptual Overview of ACA• Additional revenues (investment taxes on high-income earners, Snooki tax, mandate penalties, Cadillac tax on high cost plans) to fully offset cost of coverage expansion.• Additional package of delivery system reforms (ACOs, IMPAC, comparative effectiveness research, innovation grants) – Each could lower level and growth in health care costs, but unproven.
Medicaid: Key Issues• Key dimension is income: exchange subsidies & tax credits, Medicaid eligibility, employer plan affordability, mandate exemptions. – Law aligns components that define income under MAGI. – But time-horizons (“budget periods”) may differ. – Sets up concerns of “seams” & churning between programs, stratification of family members across programs.
Medicaid: Key Issues• Supreme court added a new and unexpected twist: – Medicaid expansion optional. – Premium tax credits start at 100% FPL; no subsidies under 100% FPL. – Most stakeholders keeping powder dry until after Nov. elections. • I will try to fill in some gaps.
Issue #1: Medicaid Expansion• Options – No expansion – Expand to poverty line* (guidance forthcoming from HHS) – Full expansion• Questions: – How much will newly insured cost? – Woodwork effect: how many currently eligible will enroll (at regular FMAP)?
Medicaid Expansion: Key Issues• Keep in mind: ACA designed as a joint package of reforms. – No exchange subsidies <100% FPL – Budget offsets premised on assumption that large #s of low-income uninsured would be covered.• Why does this matter? The dog that is not (yet) barking: – Medicaid and Medicare Disproportionate Share Hospital Payments – Hospitals will see large reductions in reimbursements and DSH – even if a state doesn’t expand Medicaid.
Medicaid Expansion: Key Issues• Medicaid DSH – Statutory reductions: $18b between 2012-2020. • HHS Sec. has discretion on how distributed across states. • Hospitals in low-DSH states see lower cuts.• Medicare DSH – 75% cut from initial levels. – Additional dollars restored based on % declines in state uninsured rate. – Why does this matter?
Medicare DSH• 45% of uninsured have income above Medicaid expansion level. – A state at U.S. average could cover no uninsured <138% FPL, and just half above, and still reduce its uninsured rate by nearly a quarter. – Triggers 17% cut in Medicare DSH from current levels. – Woodwork effect: even under no expansion, some current eligibles will enroll, reducing uninsured rate further.
DSH: Estimates• Graves, 2012 (forthcoming) – Total reductions of $51b (2012-2020) under full expansion. – If no state expands, DSH still declines by $29b ($18b Medicaid; $11b Medicare). – Results by state very striking: of top 5 most affected states, 3 have already signaled they won’t expand.
Medicaid Expansion• Woodwork effect: How can we think about fiscal impact? What about fiscal impact of new eligibles?• “conditionally” insured, presumptive eligibility suggests that some share of their health care needs already covered.• Oregon health insurance experiment: 25% increase in total spending (+1 office visit, no change ER, 30% increase in hospitalizations)
MAGI: Key Issues• Both Medicaid and Exchange (largely) use the same components to define total income. – Simplification from current Medicaid policies• Components are aligned, but time horizons aren’t. – Medicaid: Current Monthly MAGI – Advance Tax Credit and Cost-Sharing Subsidy: MAGI from most recent tax return – Final Tax Credit: MAGI from enrollment year tax return.
An “Ideal” World:
Income: Key Issues• What are the implications? – Inherent tension between minimizing applicant and administrative burdens and collecting data for an accurate projection of income – Adopting a single monthly income test that has greater variability relative to other income measures will increase state Medicaid costs and churning. – See Graves (July 2012 Health Affairs) for detailed simulation results.
Income: Recommendations• Better alignment of Exchange and Medicaid income budget periods can actually reduce state costs through better targeting.• Simulation evidence indicates that “optimal” approach is to use tax returns + state wage data to set initial eligibilty for both Medicaid and Exchange, but with generous accomodations for applicants to attest to recent or anticipated changes.
Income: Recommendations• Most statutory flexibility in the exchange income projectionprocess.• Critical to engage directly w/ benes to update eligibility/subsidies based on changes in family, job situations.• Current state wage info also important.